the u.s. economy & small business credit
TRANSCRIPT
The U.S. Economy & Small Business CreditEugenio J. Aleman, Director and Senior Economist
March 14, 2013
Economics 2
Let’s Look at the Federal Government
Fiscal Conservatism? Where? When?
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
67 71 75 79 83 87 91 95 99 03 07 11
Federal Budget Surplus or Deficit12-Month Moving Sum in Billions of Dollars
Surplus or Deficit: Jan @ -$1,030 Billion
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
Economics 3
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
U.S. Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Real GDP: Q4 @ 0.1%
Real GDP: Q4 @ 1.6%
Real GDP Growth
U.S. real GDP growth recovered somewhat, but remains weak
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 4
U.S. Nonfarm Employment
Employment turned the corner in October of 2010, but it is still
weak
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-1,000
-800
-600
-400
-200
0
200
400
600
-1,000
-800
-600
-400
-200
0
200
400
600
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Nonfarm Employment ChangeChange in Employment, In Thousands
Monthly Change: Feb @ 236.0 Thousand
Economics 5
U.S. Employment By Industry
While employment growth has been broad based, the government sector has continued to struggle
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-2% -1% 0% 1% 2% 3% 4%
Information
Other Services
Construction
Financial Activities
Manufacturing
Leisure & Hospitality
Prof. & Bus. Svcs.
Educ. & Health Svcs.
Government
Trade, Trans. & Utilities
Total Nonfarm
U.S. Employment by IndustryYear-over-Year Percent Change of 3-M Moving Average
February 2013
Number of Employees
Less
More
Economics 6
Government Employment
It is not the Federal Government!
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Federal Government,
13%
State Government,
23%
Local Government,
64%
U.S. Government Employment Composition
Economics 7
Unemployment Rate
Not as high as during the 1980s recession, but more damaging
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
2%
4%
6%
8%
10%
12%
2%
4%
6%
8%
10%
12%
60 65 70 75 80 85 90 95 00 05 10
Unemployment RateSeasonally Adjusted
Unemployment Rate: Feb @ 7.7%
Economics 8
63%
64%
65%
66%
67%
68%
63%
64%
65%
66%
67%
68%
90 92 94 96 98 00 02 04 06 08 10 12
Labor Force Participation Rate16 Years and Over, Seasonally Adjusted
Labor Force Participation Rate: Feb @ 63.5%
The Employment Situation
One of the reasons for the decline in the unemployment
rate is tied to the drop-off in the labor force participation rate
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics 9
Mean Duration of Unemployment
Duration of unemployment shows a struggling labor market
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
8
12
16
20
24
28
32
36
40
44
8
12
16
20
24
28
32
36
40
44
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Mean Duration UnemploymentAverage Weeks Unemployed
Average Duration of Unemployment: Feb @ 36.9
Economics 10
Unemployment by Education Level
College graduates have the edge even in the worst recession since
the depression
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
14%
No High SchoolDiploma
High SchoolDiploma
Some College College Degree
Unemployment Rate by Education LevelFebruary 2013
Economics 11
Consumer Price Index
Consumer prices are slowing once again
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-12%
-9%
-6%
-3%
0%
3%
6%
9%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
92 94 96 98 00 02 04 06 08 10 12
U.S. Consumer Price IndexBoth Series are 3-Month Moving Averages
CPI 3-Month Annual Rate: Jan @ 0.3%
CPI Year-over-Year: Jan @ 1.7%
Economics 12
The U.S. Economy
The Humpty-Dumpty Economy
The U.S. Economy sat on a wall,The U.S. Economy had a great fall.
All the king's Treasury-men,And all the king's Federal Reserve-men,
Couldn't put The U.S. Economy together again.
On this side of the wall:Inflation & stagnation = stagflation
On this side of the wall:1930’s depression/
Japan-like depression
Economics 13
Helicopter Ben to the Rescue
The Helicopter Effect!
Economics 14
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2000 2002 2004 2006 2008 2010 2012
U.S. Federal Reserve Target Rate
U.S. Target Rate: Feb @ 0.25%
Federal Reserve Target Rate
Monetary policy remains extremely expansive
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics 15
Federal Reserve Balance Sheet
A Monetary Tsunami?
Source: Federal Reserve Board and Wells Fargo Securities, LLC
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
2007 2008 2009 2010 2011 2012 2013
Federal Reserve Balance Sheet Trillions
Other: Feb @ $232.6BForeign Swaps: Feb @ $5.2BPDCF & TAFCommercial Paper & Money MarketRepos & Dis. Window: Feb @ $0.0BAgencies & MBS: Feb @ $1,095.0BTreasuries: Feb @ $1,734.5B
Economics
The Housing Market Today
Economics
Your House As Seen By:
You…
Economics
Your House As Seen By:
Your Buyer…
Economics
Your House As Seen By:
Your Lender…
Economics
Your House As Seen By:
Your Appraiser…
Economics
Your House As Seen By:
And…Your County’s Tax Assessor…
Economics 22
New Home Sales
New home sales are still low but improving
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
100
300
500
700
900
1,100
1,300
1,500
100
300
500
700
900
1,100
1,300
1,500
89 91 93 95 97 99 01 03 05 07 09 11 13
New Home SalesSeasonally Adjusted Annual Rate, In Thousands
New Home Sales: Jan @ 437,0003-Month Moving Average: Jan @ 402,667
Economics 23
0.0
0.4
0.8
1.2
1.6
2.0
2.4
0.0
0.4
0.8
1.2
1.6
2.0
2.4
87 89 91 93 95 97 99 01 03 05 07 09 11 13
Housing Starts Seasonally Adjusted Annual Rate, In Millions
Housing Starts: Jan @ 890K
Housing Starts
As well as housing starts
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 24
2.0
3.0
4.0
5.0
6.0
7.0
2.0
3.0
4.0
5.0
6.0
7.0
86 88 90 92 94 96 98 00 02 04 06 08 10 12
Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions
Existing Home Sales: Jan @ 4.3 Million
Existing Home Sales
Existing home sales are relatively strong
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 25
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
97 99 01 03 05 07 09 11 13
Home PricesYear-over-Year Percentage Change
Median Sale Price: Jan @ $174,100Median Sale Price, 3-M Mov Avg: Jan @ 10.9%FHFA Purchase Only Index: Dec @ 5.8%S&P Case-Shiller Composite-10: Dec @ 5.9%
Home Prices
Home prices are finally showing signs of recovery
Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities, LLC
Economics 26
Home Mortgages
Home mortgages have been declining for the past four years
and are just recently showing some improvement
Source: Federal Reserve Board and Wells Fargo Securities, LLC
-10%
-5%
0%
5%
10%
15%
20%
25%
-10%
-5%
0%
5%
10%
15%
20%
25%
1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
Real Estate LendingBy Commerical Banks, Year-over-Year Percent Change
Real Estate Loans: Jan @ 1.3%
Economics 27
Negative Equity
O…M…G…?
Source: FHFA and Wells Fargo Securities, LLC
18.518.618.619.920.020.3
22.122.322.923.8
25.428.3
32.035.6
38.642.1
56.9
22.0
0% 10% 20% 30% 40% 50% 60% 70%
UtahWashington
OregonNew Jersey
VirginiaNew Hampshire
Rhode IslandIdaho
MarylandOhio
IllinoisCaliforniaMichiganGeorgiaArizonaFlorida
Nevada
US
Negative Equity Mortgages - By StatePercent of Mortgages Outstanding
As of Q3 2012
Small Businesses and the Credit Markets
Economics 29
Small Business Sentiment
Regulation, taxes and poor sales as lead concerns
Source: NFIB and Wells Fargo Securities, LLC
Economics 30
Small Business Sentiment
Small Businesses are still feeling as if in recession
Source: NFIB and Wells Fargo Securities, LLC
Economics 31
Small Business Sentiment
Expectations of the future are very weak, but the same thing happened in the 1990s
Source: NFIB and Wells Fargo Securities, LLC
Economics 32
Small Business Sentiment
Small Business surveys remain weak
Source: NFIB and Wells Fargo Securities, LLC
Economics 33
Small Business Sentiment
Small Business following consumer confidence very closely
Source: NFIB and Wells Fargo Securities, LLC
Economics 34
Small Business Sentiment
According to Small Businesses, the economy remains in recession
Source: NFIB and Wells Fargo Securities, LLC
Economics 35
Small Business Sentiment
It is clear that weak sales are behind the weakness felt by Small Businesses
Source: NFIB and Wells Fargo Securities, LLC
Economics 36
Small Business Credit
Small Businesses are not borrowing
Source: Federal Reserve Bank and Wells Fargo Securities, LLC
Economics 37
Small Business Credit
Credit access has improved but remains above pre-recession levels
Source: Federal Reserve Bank and Wells Fargo Securities, LLC
Economics 38
Small Business Credit
Credit demand is weak but improving
Source: Federal Reserve Bank and Wells Fargo Securities, LLC
Economics 39
Small Business Credit
Lending standards have loosened considerably
Source: Federal Reserve Bank and Wells Fargo Securities, LLC
Economics 40
ISM Manufacturing Index
Manufacturing has weakened but it is back to expansion
territory
Source: Institute for Supply Management and Wells Fargo Securities, LLC
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65
87 89 91 93 95 97 99 01 03 05 07 09 11 13
ISM Manufacturing Composite IndexDiffusion Index
ISM Manufacturing Index: Feb @ 54.2
12-Month Moving Average: Feb @ 51.8
Economics 41
ISM Non-Manufacturing Index
But the service economy continues to move along
Source: Institute for Supply Management and Wells Fargo Securities, LLC
35
40
45
50
55
60
65
35
40
45
50
55
60
65
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
ISM Non-Manufacturing Composite Index
ISM Non-Manufacturing Index SA: Feb @ 56.0
Economics 42
-$12
$0
$12
$24
$36
$48
$60
-$12
$0
$12
$24
$36
$48
$60
2007 2008 2009 2010 2011 2012
Revolving & Nonrevolving DebtMonth-over-Month Change, 3-M Mov. Avg., Billions of Dollars
Revolving: Jan @ -$0.7 BillionNonrevolving: Jan @ $16.5 Billion
Consumer Credit
Credit card lending is non-existent
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics 43
Household Debt
U.S. Households are ready to start borrowing
Source: The Conference Board and Wells Fargo Securities, LLC
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Household Debt Service RatioDebt Payments as a Percent of Disposable Personal Income
DSR: Q3 @ 10.6%
Economics 44
20
40
60
80
100
120
140
160
20
40
60
80
100
120
140
160
87 89 91 93 95 97 99 01 03 05 07 09 11 13
Consumer Confidence IndexConference Board
Confidence Yr/Yr % Chg: Feb @ -2.8%Confidence: Feb @ 69.612-Month Moving Average: Feb @ 66.6
Consumer Confidence
Consumer confidence is still very weak for a strong recovery
Source: The Conference Board and Wells Fargo Securities, LLC
Economics 45
0%
3%
6%
9%
12%
15%
0%
3%
6%
9%
12%
15%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Personal Saving Rate Disp. Personal Income Less Spending as a % of Disp. Income
Personal Saving Rate: Jan @ 2.4%Personal Saving Rate, 12-Month M.A.: Jan @ 3.8%
Personal Saving Rate
The best news is that the saving rate has improved
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 46
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Conventional Mortgage Rate vs. 10-Year Treasury YieldPercent
Conventional 30-Year Fixed Mortg. Rate: Feb @ 3.53%10-Year Yield: Feb @ 2.02%
Mortgage and Treasury Rates
Mortgage interest rates are starting to edge up again but
from a very low base
Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC
Economics 47
Wells Fargo International Economic Forecast(Year-over-Year Percent Change)
GDP CPI2012 2013 2014 2012 2013 2014
Global (PPP weights) 2.7% 2.8% 3.7% 4.2% 3.9% 4.3%Global (Market Exchange Rates) 1.5% 1.6% 2.4% n/a n/a n/a
Advanced Economies1 1.2% 1.2% 2.3% 2.1% 1.3% 1.8%United States 2.2% 2.0% 2.3% 2.1% 1.6% 2.1%Eurozone -0.5% -0.1% 1.8% 2.5% 1.3% 1.7%United Kingdom 0.2% 1.1% 2.0% 2.8% 2.5% 2.1%Japan 1.9% 0.4% 2.5% 0.0% -0.2% 0.1%Korea 2.1% 2.8% 4.3% 2.2% 2.6% 3.1%Canada 1.8% 1.5% 2.6% 1.5% 1.1% 2.0%
Developing Economies1 4.4% 4.7% 5.4% 6.7% 7.0% 7.2%China 7.7% 8.1% 8.4% 2.7% 3.0% 3.5%India 5.0% 5.7% 6.5% 9.7% 9.0% 9.3%Mexico 4.1% 3.3% 3.4% 4.1% 4.1% 4.8%Brazil 0.8% 2.2% 4.2% 5.4% 6.3% 6.1%Russia 3.4% 3.1% 3.7% 5.1% 6.0% 5.5%
Forecast as of: February 6, 20131Aggregated Using PPP Weights
Global Forecast
Growth will remain positive but weak
Source: Wells Fargo Securities, LLC
Economics
Wells Fargo Securities, LLC Economics Group
48
John Silvia … ....................... … [email protected]
Global Head of Research and Economics
Diane Schumaker-Krieg ………………… ………[email protected] Head of Research & Economics
Chief Economist
Mark Vitner, Senior Economist……………....………. . [email protected]
Jay Bryson, Global Economist …………………....………[email protected]
Eugenio Aleman, Senior Economist ……………[email protected]
Sam Bullard, Senior Economist …………………………[email protected]
Anika Khan, Senior Economist .… . [email protected]
Senior EconomistsSarah Watt, Economic Analyst …………………………… [email protected]
Kaylyn Swankoski, Economic Analyst [email protected]
Zachary Griffiths, Economic Analyst [email protected]
Sara Silverman, Economic Analyst [email protected]
Economists
Azhar Iqbal, Econometrician………………………………[email protected]
Tim Quinlan, Economist …………………………………[email protected]
Michael A. Brown, Economist ………………… [email protected]
Economic Analysts
Administrative Assistants
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, theFinancial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, butnot limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells FargoSecurities (Japan) Co. Limited. Wells Fargo Securities, LLC. (“WFS”) is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member ingood standing of the National Futures Association. Wells Fargo Bank, N.A. (“WFBNA”) is registered with the Commodities Futures Trading Commission as a swap dealer and is a member ingood standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within thispublication. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells FargoSecurities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to changewithout notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. WellsFargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2013 Wells Fargo Securities, LLC.
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Important Information for Non-U.S. Recipients
For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by theFinancial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets inFinancial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the FinancialServices Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying thisdocument (collectively, the “Materials”) are provided for general informational purposes only.
Peg Gavin, Executive Assistant. [email protected]
Cyndi Flowe, Senior Administrative Assistant [email protected]